The Securities and Exchange Commission of
Pakistan (SECP) has released the much-awaited report of Task Force
on the March Crisis. This Task Force was constituted by the SECP in
April and the time given was one month. First there was a delay in
finalizing the report and then the Commission sat on the report for
nearly one month. It was made public only when Standing Committee of
National Assembly conducted a public hearing. The general impression
is that the report would have not been public had the Committee not
suggested to undertake fresh investigation. The SECP was also prompt
in issuing notices to some brokers for indulging in activities,
which it did not consider permissible under the rules and
regulations.

There is a mixed reaction about the report. Some
people term it a bold step of the Commission to put itself under the
scrutiny. They also appreciate the work done by the committee headed
by justice (Retired) Saleem Akhtar. However, others say, "There
is nothing new in the report because most of the facts were already
known. Bringing it on record does not serve the purpose. The Task
Force, besides identifying the people/institutions responsible for
the crisis, should also have suggested punitive action against those
found guilty. The suggestions for capacity building of the stock
exchanges in general and the Karachi Stock Exchange in particular
are mere rhetoric."

It is important to recall that when the KSE-100
index was moving up and creating new records on the daily basis,
many analysts had hinted towards the emerging balloon. Certain
weaknesses in the regulatory and risk management systems were also
pointed out but hardly any attention was paid. Rather it was often
said that the index was touching new highs due to improving economic
fundamentals. The euphoria was also linked with the ongoing process
of privatization. But one day the inevitable happened. Since March
the market has remained in the grip of bearish sentiments, despite
further improvement in the economic fundamentals.

However, some of the points highlighted in the
report need further deliberation, simply because unless the long
existing weaknesses are removed investors' base in the country
cannot be expanded. Speculation is the driving force of equities
market, but it had attained the level of manipulation. It is often
alleged that some of the brokers and high net worth investors have
attained the power to move the market in a desired direction. On top
of this, insiders' trading, though prohibited by law, is common.

The Task Force has suggested constituting index
based on free float. The demand had been there for many years and it
became more pronounced after the listing of large cap companies,
also enjoying heavy weightage in the KSE-100 index. Many analysts
have been saying that the KSE-100 index does not depict true market
sentiments and often give a distorted picture of the market. This
also became more than obvious when the index was moving up and also
when it experienced a nosedive.

It is also pertinent to point out that there is
hardly any free float available in Pakistan. Bulk of the shares is
held by the sponsors, financial institutions and mutual funds. The
general perception is that the free float of listed companies ranges
from 15 to 20 percent. However, some of the analysts are of the view
that free float is as low as 5 percent. Keeping these percentages in
mind one may say that daily trading volume often exceeds the free
float. This point can be substantiated if one looks at the daily
trading figures of some of the volume leaders when the market was
excessively bullish.

The report has also hinted about the rescue move
pertaining to OGDC. There are two points of view: 1) that the market
would have crashed had this move not made and led to massive
defaults and 2) that it was not the best move but it was one of the
possible moves to provide the immediate support to the market.
Though it was said that the move was aimed at saving small
investors, one cannot resist from saying that the move was aimed at
saving some of the brokers from eminent default. The consortium had
bought OGDC share around Rs 117 per share. Therefore, anyone holding
more than 5,000 shares could not be called a small investor.

After the debacle it also became evident that the
KSE board and SECP did not enjoy cordial relations, rather they
faced draggers drawn situation. It was also said that the SECP was
following arm-twisting policy and the KSE board was trying to
influence the regulators by getting sympathies of the Prime
Minister. The impression was supported by the acts of both the
sides.

The SECP as well as the Standing Committee of
National Assembly seem to agree on a point that further probe was
needed to find out the real reasons for market crash and to identify
those responsible for the debacle. A lot of moves have been
suggested by the brokers as well the regulators to protect the
interest of small investors. However, brokers and large net worth
investors have always emerged to be the ultimate beneficiary.

The government has emerged to be the biggest
loser of the stock market crisis. Government's strategy -
"Privatization for People" - has got the biggest dent.
Most of the public offerings of state enterprises were
oversubscribed, with KAPCO creating a record, which may not be
broken in the foreseeable future. As against this the response to
public offering of United Bank was disappointing - subscription was
received to the tune of 42 percent only.

The government is also trying hard to attract
portfolio investment from the foreign fund managers. If the overseas
investors get the impression that Pakistani market is not
transparent and manipulation is there, they would never consider
Pakistan a preferred destination for their investment. The country
cannot afford to carry this impression. Let us all join the force to
weed out irregularities from the regulatory system and build a
transparent market free from manipulation.

Another task force should be constituted with
wider membership and broader terms of reference. This task force
should not confine itself to empirical data but actually listen to
the complaints and grievances of people. It should also solicit
comments from all the stakeholders. However, extreme care should be
exercised in the selection of members of the task force.